Algiers reins in free market

18 November 2010

The challenge for the government is to regulate foreign investments, while also reward risk taking firms for promoting economic growth

The global economic crisis has forced governments all over the world to reassess how they manage their economies.

The key word is manage. Governments now believe that markets should be regulated more strongly to prevent a repeat of the financial collapse that the global economy is still wrestling with as 2011 approaches.

Algeria is no exception. This year it has clearly made the decision that the free market should not let be left to its own devices. It should be managed by a state that has the interests of its people at heart, instead of the rather more capitalist objectives of foreign businesses.

Rhetoric from government officials, including Prime Minister Ahmed Ouyahia, has endorsed plans for the government to regain the majority share in international investments to ensure that Algeria maintains its financial independence.

The government’s words have been supported by actions that will see it play a larger role in Algeria’s economy. The state will now have a seat on the board of all private financial institutions - albeit with no voting rights. It also plans to buy out Djezzy, the local arm of Egypt’s Orascom Telecom and the largest mobile operator in Algeria, and is also interested in buying from the UK’s BP its share in its two largest producing gas fields.

The danger is that Algeria’s actions may go too far. Although the country is financially strong - it has accumulated $150bn in foreign exchange reserves - as a developing market with a chequered political history, it is still a risk for foreign companies looking to invest. The added risk of an interfering state with a reputation for introducing new protectionist legislation will only serve to heighten those risks.

The challenge for the government is to make sure that while it prevents foreign investors from being reckless with the Algerian people’s economy, it still allows companies the opportunity to be rewarded for the risks

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